Fed Will Buy Mortgage-Related Assets

WASHINGTON — The Federal Reserve said Tuesday it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.

The program on consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans. Treasury Secretary Henry Paulson had said recently that the government was working on the new program, which will be supported by $20 billion of credit protection provided by the $700 billion bailout fund.

The Fed said that the $600 billion effort to support the mortgage market was being taken to reduce the cost of home mortgages and increase their availability. It said the purchases of the mortgages and mortgage-backed securities would take place over a number of months.

The severe financial crisis that is rocking global markets at the moment began more than a year ago with rising defaults on subprime mortgages, loans provided to borrowers with weak credit histories.

The billions of dollars of losses financial institutions have suffered on their mortgage loans have caused banks to stop making new loans of various types, which almost certainly has helped push the country into a deep recession.

Comments

[PhilipTaylor]

Bypass Mortgage Bankers who refuse to cooperate!

Offer lower cost Fixed Rate Loans at the FED Rate plus 2% or 3% to Home Owners and Businesses using the Internet!

Offer Direct Low Cost Government loans using the Internet and Automation with manual Checking!
The best approach is to have Fannie and Freddie offer automated internet loans using FED Rate + 2% or 3% directly to refi homes and avoid many layers of refinancing fees and the mortgage bankers who are responsible for these "Trick" Loans! Offer this service in libraries for those not having access to the Internet at home!

The automation can do 98% of the verification and loan application and the other 2% for manual final check by Fannie and Freddie!

[OB-GYN]

Any one know if this will help those mortgagees nearing foreclosure? How about mortgages not held by large banks, Fannie etc, but by smaller private banks unwilling to work with the 300 million HOPE system (which gives them the right not to participate)? There's a lot of people out there that I still do not see definite relief (workings between bank and mortgagee) in spite of all the US billions pledged.

[KillTheMessenger]

This won't help the mortgagees at all. It will only help the lenders which will take a smaller hit by the foreclosure. In effect it might even make the situation worse because it takes pressure off the lenders to reduce the foreclosure rate by offering better terms and accept short term losses.

You are simply seeing the extension of the same "free market politics" that believes in big money over little money.